Signs turn positive at Old Republic, but challenges remain

If the recent results at Old Republic International Corp., which insures residential mortgages among other things, are any indication, the U.S. housing market is beginning to inch toward recovery.

The stock market was surprised by the first-quarter results Chicago-based Old Republic announced April 22. The company reported earnings of 10 cents a share, compared with a loss of 23 cents a share a year earlier and a Wall Street consensus of a 12-cent loss. It was the first positive earnings statement from Old Republic since late 2007.

It wasn't exactly a windfall, but the company revealed that its mortgage guaranty division, which posted a loss of $144.6 million in the year-earlier quarter as mortgage delinquencies soared, narrowed its loss to $34.1 million. "We are headed towards better times," Chairman and CEO Aldo Zucaro said.

Christopher Nard, Old Republic's president-elect, said the company enjoyed "the first overall decline in traditional (mortgage) delinquents that we have seen since the first quarter of 2007."

Analysts scrambled to reassess their outlook for the company. Elizabeth Malone of Wunderlich Securities Inc. in Baltimore more than doubled her overall 2010 earnings estimate to 35 cents a share from 14 cents, with a further escalation to $1 now likely in 2011. "The increase in earnings estimates is supported by better operating performance in the mortgage insurance business," she said.

The company, however, remains challenged. Revenue, which advanced 6% overall in the first quarter to $929.6 million, has been hamstrung by softness in general insurance lines, particularly workers compensation. With unemployment rates high, Old Republic has fewer workers to insure. "Employment is very critical for us," Mr. Zucaro noted.